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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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If the standalone selling price of a good or service is not readily observable, what approaches might a company use to obtain an estimate of the stand-alone selling price?

To determine

State the approach used by the Company to obtain an estimate of the stand-alone selling price, if the stand-alone selling price of a good or service is not readily observable.

Explanation

The seller can use the following approaches “to obtain an estimate of the stand-alone selling price, if the stand-alone selling price of a good or service is not readily observable”:

  • “An adjusted market approach”,
  • “An expected cost plus a margin approach”, or
  • “A residual approach”.

Adjusted Market Assessment Approach: “Adjusted market approach” considers the market wherein, the sale of goods and services takes place and it anticipates the price that the customer is willing to pay in the market. Factors like price of competitors, position of market, structure of cost must also be examined. If a single good or service is sold in multiple markets, then it could have more than one stand-alone selling price. While estimating stand-alone selling prices, Discounts provided by an entity when a good or service is sold separately must be taken into consideration...

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